Ed Miliband hopes to win over the New Generation. Photograph: Christopher Furlong/Getty Images

I'd like to be part of the New Generation. Of course I would. But unlike, say, Ken Livingstone, I've been around the block too many times to throw myself wholeheartedly into "optimism". Not that I don't retain an element of naivety. The first time I watched Ed Miliband's speech to the Labour conference on Tuesday, I felt soothed, even grateful. I'd waited a long time to hear a Labour leader say such things, after all. Then every time I saw a clip of the speech, that clip seemed slightly absurd. Who warned: "History repeats itself, first as tragedy, then as farce"? Ralph Miliband would have known. New Labour was a tragedy. New Generation Labour, I'm afraid, seems farcical to me, already. I hate myself for it, I really do. But there it is.

It seems to me that all we voters have to choose between is two brands of fantasy. Ed Miliband's fantasy is that Labour can now do all the stuff it was voted in to do in 1997, when it achieved an awesome mandate at the start of a long boom. That's certainly optimistic. David Cameron's fantasy, shared by his deputy, is that he can wipe out the deficit within five years, to the applause of a busy, purposeful and grateful nation. This sort of wishful thinking is, apparently, "pessimistic". Right.

Goodness, the polity is weird. On Newsnight, after Miliband's speech (I'm not going to call him Ed – you know which one I mean), an audience of Labour supporters was told of the next day's Telegraph headline. A leaked letter to David Cameron, from Liam Fox, the defence secretary, had warned of the danger of cutting a draconian 10% from his ministry's budget. The assembled Labour activists clapped joyfully. Such farce. "Why are you clapping?" someone should have asked. Defence cuts are dangerous because ordinary working people are being killed and maimed in Afghanistan, in a war that might not have got so out of hand if all military and political eyes had not quickly swivelled their focus to Iraq. Under which the New Generation has apparently drawn a line. It's not so easy to draw a line under the consequences of that "wrong decision" – and anyway I'm longing to see Miliband's snaps of his happy days spent with the New Generation's outriders, marching against the war.

Will defence cuts be among those Miliband has graciously indicated he will support, in his effort to persuade the electorate of Labour's fiscal responsibility? Possibly. He should bear in mind that the last historic reclamation of Labour's fiscal responsibility came with a three-year guarantee that it would stick rigidly to Conservative spending plans. That was the central promise of the so-called prawn cocktail offensive, in which Labour wooed business leaders. It was the underpinning of those heady early days, whose establishment- questioning radicalism Miliband asks everyone to remember with such fondness. Labour carried on keeping business leaders happy, of course. Wonderfully, the New Generation has drawn a line under that too. Again, the consequences are not so easy to jettison.

Still, at least there is cross-party agreement on what needs to be done. A new economy must be crafted, one that isn't so dependent on financial services. It's the missing Part B in the Conservative folly. It's the missing Part B in the Labour folly too. Miliband did mention Sheffield Forgemasters in his speech. The government's cancellation of the £80m loan to the company that was arranged by Old Generation Peter Mandelson is another of the cuts that he will not be supporting . . . necessarily. Instead, Miliband wants "an independent panel to investigate fully the government's cancellation of the Forgemasters loan and provide a binding recommendation on whether the loan should be reinstated". That sort of fighting talk should provoke attention drift even from the New Generation. No wonder Miliband stuck with saying that the government was being "not responsible, it's irresponsible" in his speech. Does he even know if the government is being responsible or irresponsible? Or does he need an independent panel to decide that for him?

Nevertheless, the Sheffield Forgemasters problem is interesting. Should an indebted government be borrowing from the bond markets to bolster the ambitious expansion of a limited company that is reluctant to raise money by issuing more shares, and thereby diluting their value? One problem with the "old economy" was the reluctance of shareholders to invest for the long-term. Can the "new economy" really be built by socialising that reluctance, while leaving the profits in shareholders' hands? Perhaps there needs to be a national conversation about this, rather than an investigation by an independent panel.

One thing cannot, however, be denied. Miliband's hero, John Maynard Keynes, would have been minded to invest in Forgemasters. Ed Balls, who presently appears to be straddling the generations as he waits to see if he gets the job he fancies, would be minded to do so as well. Shortly before the leadership election results were announced, he told a mystified group of schoolchildren that Keynes would have generated economic growth just by hiring people to dig holes and fill them back up. Balls didn't, however, add what Keynes had added. "It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations once we understand the influences upon which effective demand depends."

One of Britain's problems is that it paid people to dig up holes and fill them in again, during a boom. Well, it didn't, quite, because that would be "workfare". But it did emphasise that to find employment, people must have skills, and that those offering unskilled labour could hardly expect a living wage from employers, no matter how profitable the companies they worked for were. The government merely subsidised poverty pay, and was "content to remain dependent on such fortuitous and often wasteful mitigations". The New Generation has drawn a line under this too. Rhetorically anyway.

How now to promote "effective demand"? In the case of Forgemasters, the demand is there. Britain's nuclear energy programme may not be exactly healthy (no government subsidy for nuclear development was the Old Generation's policy, under Old Generation energy secretary Ed). But Forgemasters has an eye to the foreign markets it believes will be buying the large castings that only one other company in the world presently supplies for nuclear power stations.

The problem? That's £80m worth of hole-digging that will need to be cancelled somewhere else to create 181 jobs at the plant and the same again in supply lines. Liam Byrne is presently looking very New Generation. But one thing hasn't changed since his days as chief secretary: "There's no money left." If only Keynes had been Labour's great hero while it was in power. Still, he will be next time. Roll on, the boom.